India's Private Sector Growth Slows to Three-Year Low Amid Rising Costs

India's private sector growth has hit a three-year low, primarily due to rising costs and declining demand. The latest PMI data reveals a significant slowdown in both the services and manufacturing sectors. While export orders have increased, businesses are grappling with higher expenses and weakened confidence. Geopolitical tensions are further complicating supply chain stability. This article delves into the factors affecting India's economic landscape and the implications for future growth.

By Narendra Chaudhary Jul 24, 2026, 12:05 IST

Weakening Momentum in India's Private Sector

In July, India's private sector experienced a significant slowdown, marking its weakest growth in over three years. Businesses are facing challenges such as declining demand, increasing costs, and ongoing market difficulties. The latest HSBC Flash India Purchasing Managers' Index (PMI), produced by S&P Global, indicated that the deceleration in both output and new business has negatively impacted overall economic activity, even as inflationary pressures intensified. The HSBC Flash India Composite PMI Output Index fell to 54.3 in July, down from 57.1 in June. While this figure remains above the neutral 50-point threshold, it reflects the slowest growth rate since March 2022.

Respondents to the survey cited several factors hindering growth, including tough business conditions, heightened competition, order cancellations, reduced customer inquiries, and shortages of essential raw materials. Although new business continued to rise, it did so at the slowest pace in nearly four and a half years.

Significant Slowdown in Services Sector

The services sector was primarily responsible for the overall decline in private sector activity. The Services PMI Business Activity Index plummeted to 53.1 in July from 57.4 in June, marking its lowest level in 53 months. Conversely, the manufacturing sector showed relative resilience, with the Manufacturing PMI Output Index increasing to 57.0 from 56.3, indicating stronger production levels. However, the overall Manufacturing PMI slightly decreased to 53.9 from 54.2, suggesting a modest reduction in growth momentum.

Despite weaker domestic demand, international business provided some support, with export orders rising in both manufacturing and services, particularly in manufacturing. At the composite level, international sales grew at the fastest rate since March.

Businesses continued to encounter rising cost pressures in July, with companies reporting increased expenses for fuel, transportation, raw materials, and labor, leading to higher input costs compared to the previous month. Many firms responded by raising selling prices, resulting in accelerated output charge inflation. Employment expanded for the seventh consecutive month, although the hiring pace remained modest. Business confidence also dipped, reaching its lowest point in six months.

Geopolitical Tensions Heighten Supply Concerns

HSBC noted that geopolitical events have led businesses to prepare for potential supply chain disruptions by increasing inventories and purchasing raw materials. 'Renewed tensions in the Middle East have prompted firms to build buffers to manage uncertainties surrounding the duration of supply-side shocks. Inventories of finished goods and inputs have risen alongside increased purchasing volumes. Both output and new export orders have grown, even as overall manufacturing growth has slightly eased. Price pressures have intensified, with output charge inflation accelerating, indicating a renewed effort to protect profit margins,' stated Pranjul Bhandari, Chief India Economist at HSBC.